What is a cryptocurrency?
A cryptocurrency is an internet-based medium of exchange that runs on Blockchain technology. It uses cryptographic functions to carry out financial operations. Its most well-known characteristic is that it functions in the absence of a central entity. Generally, a central server is in place to make sure that there is no double-spending in a payment system. In a decentralized payment system such as this, the server is out of the equation. Therefore, each entity in this P2P network is required to have a list of all the transactions to ensure the future sales and purchases are valid.
Transactions only take place when the private key of the sender signs them. Once the private key signs and confirms the purchase, its information is broadcasted to the entire peer to peer network. Then it is sent from one peer to the next. For instance, if you want to send bitcoins to a friend, your private key must sign the transaction for it to occur.
Dealing with cryptocurrencies has always been as confusing, especially to the Indian market. Clear and concise rules and protocols for tax on assets have been in place for the market to follow, but laws for cryptocurrencies still do not seem to have materialized.
There is a great amount of confusion and uncertainty about the crypto laws. This stems from the fear of the introduction of laws that may not support crypto-related activities. The truth is that the general population tends to believe the hype and mainstream perception of regulations and not the actual laws. For example, the Reserve bank of India merely restricted banking access to cryptocurrency entities.
However, the Indian population assumed the RBI had declared cryptocurrencies illegal. In any case, if you happen to be profiting from cryptocurrencies, you ought to pay taxes for the same. You will need to use the best crypto tax software for the same.
Risks that come with Cryptocurrencies
If you’ve jumped head-first into the world of cryptocurrencies, chances are this is the first question you wanted addressed. While cryptocurrencies are risky in some ways, they do have some vital traits that make them different from real-world currencies.
Once confirmed, nobody can reverse transactions. No bank or any other central authority is capable of undoing your transactions. In simple words, there exists no safety net.
Safe and Secure
While the transactions are irreversible, they are secure. The owner of the private key is the only entity that can transfer cryptocurrencies. That said, it is impossible to hack the system due to the unbelievably complex cryptography system.
Cryptocurrencies cannot be linked back to their real-world identities. You receive bitcoins on addresses that are chains of many characters. It may be possible to analyze the transaction flow but not determine the real-world identities of the accounts.
No need for permission
No centralization implies that you do not need permission to use cryptocurrencies. You can download the software with minimum effort and send or receive bitcoins or any other cryptocurrency. There is no gatekeeper in such a network.
Value and Scope of Cryptocurrencies
Cryptocurrencies are irreversible, pseudonymous, and secure means of payment and are completely independent of political influence. This implies that it is impossible to prevent someone from using bitcoin (or any other cryptocurrency). The rise of crypto coins like Bitcoin paved the way for the beginning of a new economy. Cryptocurrencies are practically digital gold.
Cryptocurrencies are defined as money that is independent of external influence from authority and is highly likely to increase its value over the next few years. It is a no-brainer that people all over the world are buying into cryptocurrencies more than ever to save themselves from the devaluation of their currencies. As you may have inferred thus far, cryptocurrencies have their advantages and downsides and in turn, are risky but equally rewarding.
Regardless of the public’s view on the subject, cryptocurrencies are here to change the economy forever. It is your choice to either join this phenomenon or play it safe and watch from afar. If you’ve decided to invest in cryptocurrencies, be sure to look for a good crypto tax calculator to file your taxes with ease.
The Best Crypto Tax Software
TokenTax provides one of the easiest ways to report your crypto capital gains and income taxes. Make sure you note that TokenTax is the only crypto tax platform that supports every major exchange.
CryptoTrader.tax allows crypto traders to calculate their capital gains or losses in no time. Their easy to use UI makes it easy to import your transaction data and ensure you are not overpaying your taxes. Their platform currently supports a variety of currencies like Coinbase, Bittrex, Gemini, Binance, and Poloniex.
CoinTracker is one of the best tax reporting software on the market. Its platform automatically synchronizes your crypto balances and transactions from your exchange accounts. Cointracker’s interface displays your digital assets and the associated trading history.
CoinTracker also provides a performance tracker, which gives you a clearer picture of your investment performance over a period
It is one of the earliest and most trusted tax calculators for cryptocurrency investors. Its online platform allows users to import cryptocurrencies and purchase & sales data throughout the year from many different crypto exchanges.